iamnik77 (93.64)

What is going on with FedEx?

3

My friend who works at a FedEx office just called me to give me the bad news. Many employees at FedEx will be taking paycuts along with a freeze on raises for at least one year. Fred Smith, the CEO, is taking a 20% cut, the people immediately below him are taking smaller pay cuts, and the lowest salaried employees are taking 5% pay cuts. My friend is the highest level non salaried employee so fortunately she won't be taking a pay cut but will not get a raise this year. Also, her company match in her 401k along with all other FedEx employees is being terminated for at least a year. All of this will go along with a large scale hiring freeze.

FedEx, like many businesses today is having a very difficult time projecting what their profits for 2009 will look like. It looks like at the bottom of their range of projections would be a 50% drop in profits from the trailing year. These pay cuts are estimated to save FedEx possibly a billion dollars over the next year. If that is the case, FedEx's profits should stay level if their darkest projections become reality. And with DHL no longer operating in the USA, you would think that FedEx would see at least some boost in market share.

To me, this looks like Fred Smith is taking aggressive actions to protect the stock price. He was worth about two billion a year ago and is worth a little over a billion today. I'm sure he is not interested in being worth only 500 million a year from now if FedEx's profits fall off a cliff. This must be tough for him because up until recently, FedEx had been a stock market darling. The PE of the company is at 19 right now so it has room to fall if profits dry up.

Fedex is the best in the business in terms of profitability. They will survive at the least. Where they end up in terms of profitability will wholly depend on whether the economy at large continues to contract or finally bottoms out. Going long on Fedex is going long on the macroeconomy (with little to no downside risk over the next few years). I think there may be a good time for that but you might be catching a falling knife at the current levels. 2009 by all appearances is going to be a bad year, but if we get a rebound in 2010? Might be a good idea to buy some FDX around fall of 2009.

global small businesses will continue to grow. as a former store owner and later a clothing company owner I have to say that without FedEx many companies would not exsist. most companies always use FedEx to ship samples of clothing or various things around teh globe. FedEx is run very professionally! I am originally from Iran and grew up in Germany and im proud how diverse FedEx mangement is. These guys have the pulse of the amrket and can adjust accordingly.

Also consider, as more and more people travel less because of lack of money they will use FedEx even more to send stuff around the world.